Financial institutions whose employees get involved in money laundering can be held liable for the activity, U.S. financial and law enforcement experts said yesterday.
That's true even when bank management doesn't know about the criminal activity, they stressed.
"If an employee of a [major bank's]branch does something wrong, that bank can be potentially out of business," said Richard Small, assistant director of banking supervision and regulation with the U.S. Federal Reserve Board.
Mr. Small spoke yesterday at the Pacific Rim Money Laundering and Financial Crimes Conference being held this week in Vancouver.
The two speakers were on panels discussing the role of the banking community and law enforcement agencies in Operation Casablanca, a three-year-long sting operation conducted by the U.S. Customs Service into money laundering activities for Latin American drug smuggling cartels.
The investigation, the biggest probe into money laundering in U.S. history, led in May, 1998, to 162 arrests, including those of 15 Mexican banking officials, and resulted in the seizure of large amounts of cocaine and marijuana and about $100-million (U.S.) in suspect funds.
"It's important for corporations to be vigilant, and to ensure they have effective safeguards against employees who may be acting with another purpose [than the corporation's]" said Duane Lyons, an assistant U.S. attorney with the California Department of Justice.
Mr. Lyons played a lead role in the prosecutions that resulted from Operation Casablanca.
Mr. Small said Operation Casablanca highlighted the need for heightened vigilance by banks of suspect clients and activities. But an attempt to formalize that vigilance with a so-called "know your customer" policy backfired.
A proposal for new regulations was issued in December, 1998, but withdrawn the next year, after Mr. Small's office received more than 350,000 submissions criticizing the plan, which many viewed as an attack on customer privacy.
Some groups, including the Canadian Bar Association, have expressed similar concerns over Bill C-22, legislation passed this summer that includes a number of new reporting requirements for banks, as well as casinos, lawyers and insurance agents.
The legislation is designed to help regulators watch for activities that can indicate money laundering, such as large cash transactions or sums flowing through accounts.
In the United States, Mr. Small says new proposals are in the works that will attempt to watch for suspicious activities without compromising most customers' privacy.
Michael Rauh, a lawyer who represented one of the Mexican banks caught up in Operation Casablanca, said the old guidelines allowed managers to open new accounts on their own. New rules require more than one signature.
Wendy Stueck